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Blue chip The Walt Disney Company (NYSE:DIS) touched a record high of $58.82 on Monday, and one trader employed options to gamble on more upside. More specifically, it looks like the speculator bought and sold long-term calls and puts to simulate owning DIS shares.
In afternoon action, symmetrical blocks of 2,000 contracts changed hands at the January 2014 62.50-strike call and the January 2014 50-strike put. The calls crossed at the ask price of $2.26, suggesting they were likely bought, while the puts traded at $1.66 -- closer to the bid price at the time, implying they were likely sold. Open interest soared at both LEAPS strikes overnight, hinting at a split-strike version of the synthetic long stock position.
The spread was established for a net debit of $0.60 per pair of options, meaning the strategist will begin to profit if DIS topples the $63.10 level (call strike plus net debit) by January options expiration. From the stock's current price of $58.65, it would take a rally of roughly 7.6% for the position to be profitable. The sale of the puts, meanwhile, not only trimmed the trader's breakeven, but also limits risk to the net debit, as long as DIS remains north of $50 through mid-January. However, should The Walt Disney Company breach the $50 level within the options' lifetime, the puts will move into the money and the trader's losses will begin to accumulate.
Among short-term speculators, however, DIS puts are more popular than usual right now. The stock's Schaeffer's put/call open interest ratio (SOIR) of 0.94 ranks in the 66th percentile of its annual range, implying that near-term traders have been more put-biased just one-third of the time during the past year.
What's more, despite the equity's quest for new highs, short interest edged 9.4% higher during the most recent reporting period. In fact, it would take more than a week to buy back all of these bearish bets, at DIS' average pace of trading.
In early action, the shares of DIS have shed 0.3% to explore the $58.65 level, thanks to reports the company is preparing to lay off around 150 movie studio employees sometime this week.